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Special Report: 5 Select Junior Miners Primed for Big Buyouts
1. Almaden Minerals Ltd. (TSX: AMM)(NYSE: AAU)

Almaden Minerals is advancing its 100%-owned Tuligtic project in Puebla State, Mexico.

Within this project is the Ixtaca Gold-Silver Deposit.

In August 2010, Almaden reported assay results from the first hole ever drilled in the Ixtaca Zone. TU-10-01 intersected 302 meters of 1 grams per ton (g/t) gold, 48 g/t silver, and a number of high-grade intervals, including 1.67 m. of 60.7 g/t gold and 2,122 g/t silver.

It has continued growing and has been de-risked since then. Work is currently being done on a feasibility study (FS). The pre-feasibility study (PFS) showed a mine and an after-tax net present value (NPV) of US$310 million with an internal rate of return (IRR) of 41% at US$1,250 gold and US$18 silver:

[https://assets.angelpub.com/2018/15/almaden-ixtaca-pfs-48851.jpeg]

If gold goes to $1,350 per ounce and silver to US$21 per ounce, the NPV will go to US$443 million and the IRR will go to 52%. So, there is leverage.

At the time of this writing, Almaden is significantly undervalued with a market cap below US$100 million.

And the project will only continue getting more valuable.

The upcoming FS will incorporate additional drilling and cost-cutting measures. This will include cost savings from the company purchasing its own mill at an extreme discount. These changes since the completion of the PFS are expected to show an even more economically attractive project.

The Ixtaca Deposit currently hosts a proven and probable reserve of 65.1 million tonnes grading 0.62 g/t gold and 37.7 g/t silver, or 1.29 million oz. of gold and 78.8 million oz. of silver.

Across all categories, there are 2.5 million oz. of gold at a 1-gram cutoff.

We’re adding Almaden Minerals Ltd. (TSX: AMM)(NYSE: AAU) to our portfolio and are buying shares up to C$2 and US$1.60.

I can see it selling for C$3.

2. Almadex Minerals Limited (TSX-V: AMZ)(OTC: AXDDF)

Almadex Minerals is an exploration company that specializes in the discovery of new mineral prospects.

The company currently has an asset portfolio that consists of many self-managed exploration properties, several net smelter royalties (NSRs) on projects managed by other companies, company-owned drilling and geophysical equipment, and a strong working capital position.

Its impressive portfolio of exciting assets is the direct result of over 35 years of prospecting and dealmaking by Almadex’s predecessor company, Almaden Minerals. With a seasoned team of Mexican geologists and drillers, five company-owned drills, and continued oversight from Duane and Morgan Poliquin, the Almadex team is one of the best in the exploration game — especially in Mexico.

Instead of mining, the company accumulates mineral-rich properties on the cheap. Then it either joint ventures them out for other companies to drill and develop. Or it sells them when gold’s rising price pushes their values higher:

[https://images.angelpub.com/2017/17/43635/almadex-advantage.png]

Once it establishes it’s found something that can be a mined on its own, management spins out that project and puts all the other projects, royalties, and assets into a new company.

That’s how Almadex was formed. Almaden retained the Ixtaca Deposit — covered above — and everything else went to Almadex.

And that’s about to happen again because Almadex is already on to a new discovery, called El Cobre Project, which it will spin out.

El Cobre is a copper-gold porphyry project on the east coast of Mexico. A number of porphyries on the property have shown mineralization, some with high-grade copper and gold.

Almadex stock went from US$0.40 to over US$2 in 2016 when the initial discovery was made at El Cobre. And there’s still a lot more drilling to do there:

[https://assets.angelpub.com/2018/16/el-cobre-location-and-grade-49021.jpeg]

In addition, Almadex owns nearly two-dozen gold and silver assets in Mexico, Canada, and the U.S. — some of which have been joint ventured out to other junior mining companies. Its Willow Project property in Nevada was recently optioned to Abacus Mining & Exploration. And its Los Venado property in Mexico has been optioned to Wolverine Minerals.

And not only that…

But it also owns 15 royalties on other projects that it’s already generated. That includes three at the preliminary economic assessment (PEA) stage.

So, Almadex can profit from new discoveries in a rising gold price environment. And it can become a cash cow with the royalty streams of other projects.

All that, everything except El Cobre, will be spun out into the new company. And if you own Almadex shares, you’ll have shares of both.

The point of spinning out El Cobre is to unlock its individual value for shareholders and to position it as a standalone asset for takeout:

[https://images.angelpub.com/2017/17/43637/almadex-other-projects.png]

The company is being valued with a market cap of only US$60 million.

That’s a lot of optionality to gold prices in a US$60 million company that boasts some of the best exploration geologists in the world with the father-son team of Duane and Morgan Poliquin.

They own five of their own drill rigs and aren’t afraid to use them.

And in the coming gold bull market, I believe that Almadex Minerals shares will trade much higher and that the El Cobre asset will be acquired.

I’m recommending the purchase of Almadex Minerals Limited (TSX-V: AMZ)(OTC: AXDDF) for below C$1.25 and US$1.

3. Americas Silver Corporation (NYSE: USAS)(TSX: USA)

Americas Silver Corporation is one of the lowest-cost silver producers globally.

It has two operating silver assets: the Galena Complex in Idaho and Cosalá Operations in Mexico.

This year, the company is guiding toward 1.6 million to 2 million oz. of silver production and 7.2 million to 8 million oz. of silver-equivalent production. The latter is higher because the company has high-grade zinc and lead credits and because it’s increasing its production to leverage current metals prices.

Because of the high zinc and lead production, Americas Silver will have negative silver cash costs. It will produce each ounce of silver at negative US$5 to US$10 cash costs and negative US$1 to positive US$4 all-in sustaining costs (AISC).

The newly constructed San Rafael mine at Cosalá will ramp up production through 2020. It only recently entered commercial production. And it’s currently operating at 50% of reserve grade for the first 18 months.

And although this is primarily a cash flow play, there’s also exploration upside. And the company is spending US$4 million on exploration this year to increase its resources and test regional targets.

The company has a great share structure with 41.5 million shares out — 50.2 fully diluted — and has great institutional and strategic holders. These include Oppenheimer, Eric Sprott, Ingalls & Snyder, and Sprott Resources.

The company has US$9.3 million in cash and US$12 million in debt.

Shares currently trade at around US$3.75. This gives the company a market capitalization of around US$155.6 million.

The company has proven and probable reserves of 28.29 million oz. of silver, 321.9 million lb. of zinc, and 347.5 million lb. of lead.

It has measured and indicated resources of 57.88 million oz. of silver, 333.2 million lb. of zinc, and 211.6 million lb. of lead.

It has inferred resources of 36.7 million oz. of silver, 334.7 million lb. of zinc, and 88.3 million lb. of lead:

[Americas Silver Resources]

I did the math, and that works out to 251.35 million oz. of silver equivalent at today’s prices. That’s over US$4 billion worth of silver…

Operations

The Galena Complex in Idaho has historically produced more than 250 million oz. of silver. Americas Silver operations there consist of the Coeur mine and mill. Coeur has available silver and copper resources but is also currently on care and maintenance. There’s also the Galena mill.

Last year, the company produced 1.14 million oz. of silver and around 20 million lb. of lead from these operations. Drilling is ongoing to extend and upgrade existing resources.

But the real star of the show is Cosalá in Mexico, which is home to the new San Rafael mine. It just entered production in late 2017 but was still able to produce 0.94 million oz. of silver, 11.6 million lb. of zinc, and 5.6 million lb. of lead for the year.

There’s a large and untested land position that contains 40 historic mines over 20,000 hectares. And there’s a US$4 million drilling program planned for 2018.

This mine only took US$17 million in capital expenditures to get into production. That was 25% less than the amount estimated in the PFS. And that’s a testament to management’s ability to get things done and keep costs down.

The San Rafael mine will ramp up by 3Q 2018, with capital expenditures falling off and cash flow ramping up. Clarus Securities is estimating free cash flows (FCF) of US$22 million in 2018.

We should expect a new resource estimate in summer 2018.

Finally, the company has the San Felipe development project in Sonora, Mexico. It has good road access and is near power and available water. San Felipe is a past producer that was most recently acquired by Hochschild in 2006. Hochschild spent US$45 million on San Felipe before it determined the project to be a noncore asset and shed it.

San Felipe has 48 million oz. of silver equivalent in the indicated and inferred category.

Americas Silver acquired an option for it in 2017. It can get 100% of the project for US$15 million, US$7 million of which it’s already paid, with a US$6 million payment that’s due at the end of this year.

The mineral reserve estimate at San Rafael will be updated this year. And then, development scenarios will be considered…

Conclusion

There’s a near-term re-rating opportunity for this stock as it ramps up production at San Rafael and begins to generate FCF.

It has a great share structure. And it has some of the lowest costs in the business:

[Americas Silver AISC]

It has excellent reserves and leverage when compared to peers:

[Americas Silver Leverage]

But it’s trading at less than one times its NAV and is undervalued relative to its peers:

[Americas Silver PNAV]

Not to mention, the value of the silver equivalent that it currently contains is worth 23 to 25 times more than what the company is being valued at.

Americas Silver has 251,355,882 oz. of silver equivalent resources. That’s worth US$4.27 billion at today’s prices, or more than 23 times more than what the stock currently trades at. So, that’s the high end just based on the resource.

Americas Silver Corporation (NYSE: USAS)(TSX: USA) is trading at around US$3.75 and C$4.70. It’s a “Buy” for under US$5 and C$6.25.

4. Atlantic Gold Corporation (TSX-V: AGB)(OTC: SPVEF)

Atlantic Gold Corporation declared commercial production at its Nova Scotian Moose River Consolidated (MRC) mine — Canada’s newest open-pit gold mine.

Production is from the Touquoy and Beaver Dam deposit, which together have over 750,000 oz. of proven and probable reserves grading 1.44 g/t. But there’s plenty of upside with other nearby deposits in what amounts to a string-of-pearls model.

Fifteen Mile Stream and Cochrane Hill, for example, have over 1 million oz. of gold across all categories. And with the completion of recent successful drill campaigns, they will be getting bigger.

With the extra ounces, production could expand from 80,000 to 90,000 oz. per year to over 200,000 oz. per year.

And those are extremely low-cost ounces, projected to be US$520 per ounce of gold all in:

[https://assets.angelpub.com/2018/16/phases-of-gold-49022.jpeg]

Add in that it’s in the safe and stable jurisdiction of Canada, it’s no secret that Atlantic Gold is a prime buyout target.

Analysts that cover it say as much. In March 2018, Beacon Securities initiated coverage on the stock. Its analyst Michael Curran said:

In our view, Atlantic Gold could garner premium trading multiples among the junior gold producers for successfully delivering a low cost operation at the MRC mine. The recent life-of-mine update, which could expand production from 80-90,000 ounces per year to 200,000-plus ounces per year, should also increase investor interest in the name. We also see the potential for 200,000 ounces per year of low cost production (in a politically stable jurisdiction) as an attractive acquisition target for other producers, particularly established mid-tiers.

Curran gives shares of Atlantic Gold Corporation (TSX-V: AGB)(OTC: SPVEF) a price target of C$3.25.

We’re buying them for below C$1.50.

5. Midas Gold Corp. (TSX: MAX)(OTC: MDRPF)

Midas Gold Corp. presents a great way to leverage gold prices without a lot of risk.

Midas has locked into a very lucrative find known as the Stibnite Gold Project. The project publicly contains 6 million to 7 million oz. of gold, grading 1.6 g/t. But I believe that there’s much more gold there than that, which would make Midas one of the largest — if not the largest — gold mine in the U.S.

The site also contains nearly 3 million oz. of silver.

It’s a great deposit in a great location. The district is located in the Central Idaho porphyry (Gold) belt with over 8 million oz. past gold production. It was the largest gold, tungsten, and antimony producer in Idaho throughout its history. And it was a major U.S. source of those metals from the 1920s through the 1950s.

And now, Midas is going to build a mine there.

The company went public in 2011 and has completed a first resource assessment, a PEA, and a PFS. It’s currently working on the FS for mine development. Permitting and environmental baseline studies are ongoing.

I think the stock will be re-rated much higher for several reasons. This includes moving the current waste rock to resources in the upcoming FS that would further improve the mine’s economics, the discovery of new resources, the receipt of a permit, and a rise in gold prices.

Normally, a good mining project has either size or grade. But Midas has both.

As it stands, the project would be the fourth-highest-grade open-pit gold project in the U.S. at 1.6 g/t. And the project would be the eighth-largest gold reserve. That grade is more than three times the average grade of gold mines in Nevada.

Over the first four years of its mine life, it would be the fourth-largest gold producer in the U.S. And it could be bigger if additional ounces were added in the FS:

[Midas Highlights](Click to Enlarge)<https://images.angelpub.com/2017/17/43653/midas-highlights.png>

What’s more, the company’s PEA in 2012 showed that 5.6 million oz. would be mined. In the PFS, that number went down to 4.6 million oz. because you can’t include inferred resources.

And not only was that 1 million oz. taken out, but it was also treated as waste. So, there was a cost assigned to it.

Since then, the company has taken measures to upgrade those 1 million oz. from inferred to indicated. So, when the FS comes out later this year or next, those 1 million oz. would then be a source of revenue, which would greatly improve the economics.

This is one of the reasons that Midas stock will trade higher.

The drilling that Midas has done since 2012 has also turned up higher-grade rock. So, there could be more than 1 million oz. re-added in the FS, which would be an additional win.

Then there’s the leverage.

As it stands, at C$1,350 gold, this projects is looking at an C$832 million NPV with a 19.3% IRR. If gold goes up by only C$150 to C$1,500, that NPV would go to C$1.12 billion. Now, that’s around 10 times more than what the stock currently trades at:

[Midas Leverage](Click to Enlarge)<https://images.angelpub.com/2017/17/43656/midas-leverage.png>

So, the project is clearly significantly leveraged to the price of gold.

Midas doesn’t control that. But it does control two other types of leverage…

You also get the leverage from the conversion of inferred resources to indicated because, assuming a flat gold price environment, the value of the project would still increase by converting that material.

And the last type of leverage is getting the project permitted. You typically see projects trading at a discount early in the permitting process. And then that discount decreases as time goes on and you get closer to permitting.

I get excited when I think about what will happen to the value of share if all three forms of leverage pan out.

And I can say confidently that I think the project will be permitted for several reasons.

Besides gold and silver, Midas is also a large resource of antimony. It’s actually one of the reasons that the project was originally developed many, many years ago.

Antimony’s an unknown mineral and not well understood. But it’s one of those important lesser-known minerals.

As the mine developed and as World War II and the Korean War expanded, most of the metal that had been being used by the U.S. had been coming from China. And when Japan invaded China, that supply was cut off. This site took over and actually produced about 90% of all the antimony in the U.S. for WWII and the Korean War. So, it was a very valuable and important mine. In fact, there’s a telegram from former President Eisenhower to the mine. In it, he thanks the mine for its contribution to the war effort.

The U.S. has no current source of antimony and is entirely reliant on China for antimony supply for military purposes. The U.S. would like to have its own supply. And the U.S. Geological Survey (USGS) has been at Midas’ project several times to research the antimony there.

And as it stands, the site is in very bad environmental shape from previous mining there under former owners. There are metals leaching into a stream, and there’s a blocked salmon passage.

Midas will remediate all this, and the government won’t have to pay for it.

And because of the antimony and the environmental cleanup, I think that this project will get the green light.

And so do several other sophisticated mining companies and investors.

Franco-Nevada has already purchased a 1.7% NSR. This was the earliest stage royalty that it’s ever done on a project. The project is that good.

Teck came in and now owns 9.9% of the company.

And billionaire John Paulson came in last year and backstopped a C$55 million financing. Paulson is famous for correctly predicting the housing crash and is betting big on Midas.

It’s a large holding of mine and a longstanding recommendation in this newsletter. Current levels present a prime entry point before the FS and permits are delivered.

Midas Gold Corp. (TSX: MAX)(OTC: MDRPF) is a “Buy” for under C$1.10.

Nick Hodge
Editor, Wall Street’s Underground Profits